US Dollar Weakened Following Soft Economic Data

The US Dollar experienced a decline in recent trading sessions, primarily driven by weaker-than-expected economic data. The release of the Consumer Confidence and Richmond Fed Manufacturing Index for September both fell below market expectations, suggesting a potential for more aggressive interest rate cuts by the Federal Reserve in the coming months.

Key Economic Indicators and Their Impact

• Consumer Confidence: A decline in consumer confidence indicates a decrease in consumer spending, which can negatively impact overall economic growth.

• Richmond Fed Manufacturing Index: A weaker-than-expected manufacturing index suggests that the US manufacturing sector is experiencing challenges, potentially affecting future economic growth.

These economic indicators have led market participants to anticipate a more dovish stance from the Federal Reserve, with increased expectations for a larger rate cut at the upcoming November meeting.

Fed’s Outlook, Market Expectations

The Federal Reserve Chairman, Jerome Powell, is scheduled to make comments on Thursday, which could provide further clarity on the central bank’s outlook for the US economy and interest rates. Market participants are closely watching these comments for any hints about the potential magnitude of future rate cuts.

The CME Fedwatch Tool currently suggests a 48.5% chance of a 25-basis-point rate cut at the next Fed meeting, while 51.5% is pricing in another 50-basis-point rate cut.

Technical Factors

The US Dollar Index (DXY) has been trading within a tight range in recent weeks, near its yearly lows. The current level of the DXY does not appear to align with the interest rate differentials between the US and other countries, suggesting potential mispricing.

A break below the 100.62 support level could indicate further weakness in the US Dollar, while a break above the 101.90 resistance level could signal a potential reversal.

The US Dollar’s recent decline is primarily attributed to weaker-than-expected economic data, which has increased expectations for more aggressive interest rate cuts by the Federal Reserve. Market participants are closely watching the upcoming comments from the Fed Chairman for further insights into the central bank’s outlook. The technical analysis of the US Dollar Index suggests that the currency is currently trading near important support and resistance levels.

Key Support and Resistance Levels

• Support: 100.62, 99.58, 97.73

• Resistance: 101.90, 103.18, 103.66, 104.00